In the final quarter of 2019, luxury real estate in the U.S. rallied both in sale volume and price. The segment posted double-digit sales growth year-over-year for the first time in 2019. The entry price rose by 2.1% to $1.27 million, according to the realtor.com’s latest luxury report.
“The stock market was very strong in the last quarter and we also saw mortgage rates that were lower than they had been a year prior,” says realtor.com chief economist Danielle Hale. “That really helps the luxury segment show a lot of strength.”
The new year looked promising. Then, coronavirus gripped the world, disrupting businesses large and small in industries ranging from hospitality to housing.
In early March, Joanne Greene, a broker with Brown Harris Stevens in New York, found herself showing a three-bedroom East Side apartment, priced at around $2 million, to a couple with peculiar requests. The interested buyers, a man and a woman, donned face masks and gloves. They wanted to ride the elevator to and from the unit alone. No one was to speak during the private tour.
“They came through and it was just a little bit strange to be in an apartment and not talk,” says Greene. “Everyone’s doing what feels comfortable to them, making decisions with the information they have. It turns out that she’s pregnant and just being very cautious.”
While this incident illustrates the measures some buyers and sellers are adopting in a time when the coronavirus outbreak is impacting how agents show and close on properties, activity in the luxury echelon is mixed.
Buyers and sellers’ response to the health crisis
On Friday, having signed a sale contract the previous day, Greene and her team partner Nada Rizk said they have not yet had any cancelled appointments. Still, they decided not to bring any new properties on the market for a couple of weeks.
In Chicago, while affordable luxury residences in the $750,000 price range are performing well, “in the luxury market, we’re not getting any showings on anything,” says Matt Laricy, managing broker of The Matt Laricy Group. “A lot of my buyers are saying, ‘We need to take a step back and just kind of see how this plays out.’”
Earlier this month, in San Francisco, Joel Goodrich with Coldwell Banker Global Luxury had a series of showings for properties above $20 million. Over the weekend, though, activity in the uber luxury segment ceased.
“We now have buyers in the $1 to $4 million range circling,” says Goodrich. “We’ll see what happens at this point. It’s very much in flux.”
On Monday afternoon, Goodrich was accommodating requests for private showings in advance of the city’s scheduled “shelter in place” order, which took effect Tuesday.
In Tampa Bay, Florida, Robert Glaser, CEO of Smith & Associates Real Estate, says that although demand for tours has slowed, deals are still inked. On Monday, he knew of only two sales that had fallen through.
“It may have been stock market related or may not have,” Glaser says. “[The buyers] weren’t specific but the contracts were both for properties over $2 million.”
In Houston, Texas, “currently, most of the market is in a state of shock or denial, the first two of the seven stages of grief,” says Paige Martin, Keller Williams broker and team lead with Houston Properties Team. She added that in some neighborhoods, multiple offers keep streaming in.
Meanwhile, across the U.S., some sellers continue to invite private tours. Others prefer to keep strangers away, adopting virtual alternatives to show their properties.
In Chicago, Laricy says a few of his seller clients have decided to convert their listings to rentals.
If demand starts to slack, Alec Traub, an agent and Los Angeles team manager with Redfin, says he expects sellers, especially developers, to lower prices and be more flexible.
“[Developers] need to sell because their money is tied up or they have hard money loans that they need to pay off,” he says. “They don’t necessarily have the luxury of time,especially if they have the sense that in the short term, it’s going to get worse before it gets better.”
Sales and inventory: too early to tell
Martin says that luxury home sales in Texas’ largest city (properties over $1 million) dropped by about 6% from March 1 to March 18 compared to the same period last year. The number of price reductions inched up by 8%, she says, a fraction of the slide in the stock market.
In Manhattan, according to Noah Rosenblatt, founder of real estate service provider UrbanDigs, fewer sellers and fewer buyers have entered the market this month. Any shifts in home values, however, are harder to detect as deals usually take several months to finalize.
“In terms of pricing, we are not going to find out for three to six months [about] the deals [that] are happening right now in March,” said Rosenblatt in a video snapshot of how the coronavirus is impacting the borough.
Mauricio Umansky, CEO of The Agency real estate agency, says lower prices could be anticipated, although he cautions that the social and economic responses to the outbreak are evolving fast, which could change any preliminary outlooks.
“Pricing has been relatively steady for about a year,” he says. “People are writing offers and we’re seeing even perhaps a little bit of a continuous lowering of pricing. Certainly not 30% like in the stock market, but single-digit percentages. I think there’s a perception of decent opportunities.”
Across the U.S., agents say that residences below $2 million continue to attract attention on the market.
Stock market ramifications
Rattled by the coronavirus, the stock market is in a fickle condition that is swaying some high-net-worth buyers’ decisions – in different directions.
“In past episodes when we’ve seen stock market decline, we can see that takes a bigger toll on the luxury segment of the market than on other price tiers,” says Hale. “It makes sense because buyers who are going to be looking at and buying luxury properties tend to be the same people who have more money invested in the stock market.”
Last week, Traub helped a buyer put a $5.3 million offer on a property asking $5.9 million. Over the weekend, though, he had to revise the offer down to $4.8 million.
“[The buyer] called me and said, “I’m still interested in the property, but I don’t want to offer $5.3 million anymore,’” says Traub. “He said, “Look, with everything that’s going and just with the stock market alone, I’m worth less now. I can’t pay $5.3 million anymore.”
At the same time, however, a $2.5 million home in Venice, California, that Traub co-listed attracted multiple offers and went into escrow for $50,000 above asking. The buyer, Traub says, had sold off stocks earlier this year, emerging unscathed by the recent jitters, and sought to invest in real estate.
In economic downturns and stock market volatility, real estate has historically offered a stable shelter for wealth. It may not be much different today.
“There are opportunities,” says Umansky. “I’m looking at opportunistic purchases, whether it’s in real estate or in the stock market.”
International interest is down overall
Recent travel restrictions implemented to slow the global spread of the coronavirus have complicated – if not downright blocked – the purchase of U.S. properties by foreign buyers.
“In the short run, it does seem likely there will be a bit of a drop off” in international interest, says Hale of realtor.com. “But folks in other countries who are just looking for some diversification and a safe place to park their money will turn to the United States. So, I think in the medium to long run, the prospects actually could improve.”
In the meantime, however, Traub says a client from Singapore who was in the process of buying a Hollywood Hills home, asking about $14 million, pulled away. He was not able to travel to California for property inspections.
In New York City, Barbara Fox of Fox Residential echos Traub’s observations, although she says that one of her foreign clients continues to push forward with a deal initiated before the outbreak.
“It is a hit and miss,” Fox says about foreigners’ reactions. “But new people aren’t coming into the market right now and understandably so.”
Earlier in the global outbreak, however, Umansky saw a rise in international interest.
“Obviously, a lot of international people are having a hard time traveling to the U.S.,” he says. “But in the beginning, when China was the only one with the outbreak, we had a lot of reach out from Chinese buyers wanting to make investments here.”
As agents, buyers and sellers adjust to the health crisis, they are also starting to face business headwinds spurred by different entities responding to the coronavirus pandemic.
In New York, Fox says that some co-op buildings are advising brokers not to schedule residents’ move-ins or move-outs, renovations and even closings.
“This is a really, really bad thing,” says Fox. “We need to have our deals closed. We need them for our sellers and for our buyers. Brokers need their deals to close because we need to make some money, too.”
In San Francisco, the Office of the Assessor-Recorder shuttered yesterday, prompting agents to immediately wonder whether they could continue closing sales in the city.
“Essentially, the real estate business [could be] temporarily shut down because we cannot close,” Goodrich said minutes after receiving word of the Office’s temporary closure.
While the Office posted on its website that e-recordings continue, San Francisco Mayor London Breed’s “shelter in place” order, which discourages non-essential outings and shuts down most businesses, serves a further damp on the wider real estate industry in the area.
In compliance with the mayor’s declaration, the San Francisco Association of Realtors recommends that open houses and private tours cease for three weeks. (Bans on open houses are popping up around the country.) Nonetheless, the Association urges agents to work with clients who “need to continue with their selling and buying efforts.”
On Tuesday, New York Mayor Bill de Blasio said that the city may soon follow San Francisco’s example, which could put the country’s most exuberant real estate market on hold. Other cities may do the same.